The Providence Journal has a database of Rhode Island’s 150 pension plans. Most of these plans are part of Rhode Island’s state plans which cover local employees. In addition there are about two dozen locally-operated plans. Rhode Island’s state operated plan faces an unfunded liability of $6.8 billion (using a discount rate of 7.5%) or 45 percent funded. State Treasurer Gina Raimondo is proposing some significant reforms including moving to a hybrid defined contribution/defined benefit system. Her report, “Truth in Numbers”, puts the blame for large unfunded liabilities on unrealistic accounting.
One proposal the state is considering is setting up a fund – named MAST or the Municipal Accountability Stability and Transparency Fund – to encourage local governments to more accurately account for their pensions and OPEB liabilities and make their full annual pension contribution in order to receive additional state aid. Moody’s likes the plan.
The good news here is that Treasurer Raimondo has properly diagnosed the core problem: faulty accounting assumptions. While she stops short of endorsing the risk-free discount rate and provides an alternative estimate of liabilities based on the corporate bond rate she surmises the problem correctly. What languishing towns must consider is that their pension problems took decades to build by reference to inaccurate numbers. The strategy laid out here is a good one: first accurately calculate the bill and then proceed with structural reforms.